An Exploratory Study of British Digital Neobanking Performance

Abstract

Digital neobanks are an incredibly rapidly evolving subset of the wider British financial technology sector. However, much of the industry evaluation remains obscured by a lack of publicly available data and key financial metrics. This information asymmetry may be concerning as the onset of the Covid-19 pandemic and post-Brexit trade negotiation results have eroded the financial and regulatory foundations of the banking industry. Consequently, this research aims to understand the current industry landscape and how recent developments and data compare against historical figures. The exploratory study was conducted through a quantitative evaluation of secondary data. A total of six financial ratios were employed against historical figures from the past six years to identify areas of potential financial and growth concerns. The results of the analysis were then evaluated against an industry benchmark and theoretical frameworks from the literature. This evaluation was done to explore how the current business environment's regulatory and political challenges may affect British neobanking growth and performance going forward. The findings suggest that the rapidly growing sample neobank user base's monetisation has not necessarily been as straightforward as earlier studies envisioned. The literature review identifies that this development may tie to the overall banking sector profitability currently under strain due to low-interest rates and Covid-19 induced loan losses. The findings also identify uneven growth and financial performance between the sample neobanks and an environment of increased competition. The findings propose that British neobanks may be best served by focusing mainly on niche unsecured lending products. Furthermore, the results suggest that the low-cost advantage of the sample neobanks appears to have significantly deteriorated since the previous industry studies took place. Consequently, the study recommends further analysis of the profitability metrics once more comparative data becomes accessible.